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Activity-Based Costing and Customer Profitability Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Activity Base Activity Rate Customer Service Activity Bid preparation Shipment Support standard items Support nonstandard items $420 per request $90 per shipment Number of bid requests Number of shipments Number of standard Items ordered Number of nonstandard items ordered $30 per std. item $180 per nonstd. Item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $130,000 (81,900) $48,100 $210,000 (113,400) $180,000 (90,000) Cost of goods sold Gross profit $96,600 $90,000 37% 46% 50% Gross profit as a percent of sales The administrative records indicated that the activity base usage quantities for each customer were as follows: Ll Red eBook Show Me How Print Item Customer 1 Customer 2 Customer 3 Revenues Cost of goods sold Gross profit Customer service activities: Bid preparation Shipment Support standard Items Support nonstandard items Total customer service activities % Operating income after customer service activities Gross profit as a percent of sales Operating income after customer service activities as a percent of sales b. Interpret the report in part (0) The gross profit as a percent of sales indicated that was the least profitable, while was the most profitable. After deducting the activity costs associated with customer service activities, became the least profitable, while became nearly as profitable as Customer 2. The reason is because consumed much more customer service activities than did the other custom Anth ordered nonstandard products that required speciaked bid requests. In addition, required more stagra... 5 3 eBook Show Me How Print Item Reading REVUES Cost of goods sold Gross profit Customer service activities: Bid preparation Shipment Support standard Items Support nonstandard Items Total customer service activities Operating income after customer service activities ud pun dit lod pamud Gross profit as a percent of sales Operating income after customer service activities as a percent of sales % b. Interpret the report in part (a). The gross profit as a percent of sales indicated that was the least profitable, while was the most profitable. After deducting the activity costs associated with customer service activities, became the least profitable, while became nearly as profitable as Customer 2. The reason is because consumed much more customer service activities than did the other customers. Apparently, ordered nonstandard products that required specialized bid requests. In addition, required more shipments, indicating smaller shipments to a customer's location, rather than a few large shipments Activity-Based Costing and Customer Profitability Metroid Electric manufactures power distribution equipment for commercial customers, such as hospitals and manufacturers. Activity-based costing was used to determine customer profitability. Customer service activities were assigned to individual customers, using the following assumed customer service activities, activity base, and activity rate: Activity Base Activity Rate Customer Service Activity Bid preparation Shipment Support standard items Support nonstandard items $420 per request $90 per shipment Number of bid requests Number of shipments Number of standard Items ordered Number of nonstandard items ordered $30 per std. item $180 per nonstd. Item Assume that the company had the following gross profit information for three representative customers: Customer 1 Customer 2 Customer 3 Revenues $130,000 (81,900) $48,100 $210,000 (113,400) $180,000 (90,000) Cost of goods sold Gross profit $96,600 $90,000 37% 46% 50% Gross profit as a percent of sales The administrative records indicated that the activity base usage quantities for each customer were as follows: Ll Red eBook Show Me How Print Item Customer 1 Customer 2 Customer 3 Revenues Cost of goods sold Gross profit Customer service activities: Bid preparation Shipment Support standard Items Support nonstandard items Total customer service activities % Operating income after customer service activities Gross profit as a percent of sales Operating income after customer service activities as a percent of sales b. Interpret the report in part (0) The gross profit as a percent of sales indicated that was the least profitable, while was the most profitable. After deducting the activity costs associated with customer service activities, became the least profitable, while became nearly as profitable as Customer 2. The reason is because consumed much more customer service activities than did the other custom Anth ordered nonstandard products that required speciaked bid requests. In addition, required more stagra... 5 3 eBook Show Me How Print Item Reading REVUES Cost of goods sold Gross profit Customer service activities: Bid preparation Shipment Support standard Items Support nonstandard Items Total customer service activities Operating income after customer service activities ud pun dit lod pamud Gross profit as a percent of sales Operating income after customer service activities as a percent of sales % b. Interpret the report in part (a). The gross profit as a percent of sales indicated that was the least profitable, while was the most profitable. After deducting the activity costs associated with customer service activities, became the least profitable, while became nearly as profitable as Customer 2. The reason is because consumed much more customer service activities than did the other customers. Apparently, ordered nonstandard products that required specialized bid requests. In addition, required more shipments, indicating smaller shipments to a customer's location, rather than a few large shipments